International Seaways, Inc.

Good morning, and welcome to the International Seaway's first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to James Small, General Counsel. Please go ahead.

Thank you. Good morning, everyone, and welcome to International Seaway's earnings release conference call for the first quarter of 2020. Before we begin, I would like to start off by advising everyone on the call with us today of the following. During this call, management may make forward-looking statements regarding the company or the industry in which it operates. Those statements may address, without limitation, the following topics. outlooks for the crude and product tanker markets, changing oil trading patterns, forecasts of world and regional economic activity and of the demand for and production of oil and other petroleum products, the effects of the ongoing coronavirus pandemic, the company's strategy, purchases and sales of vessels and other investments, anticipated financing transactions, expectations regarding revenues and expenses, including vessel, charter hire, and G&A expenses, estimated bookings and TCE rates for the second quarter of 2020 or other periods, estimated capital expenditures in 2020 or other periods, projected scheduled dry dock and off-hire days, the company's consideration of strategic alternatives, the company's ability to achieve its financing and other objectives, and other economic, political, and regulatory developments around the world. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including management's experience and perception of historical trends, current conditions, expected and future developments, and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties, and assumptions, many of which are beyond the company's control, which could cause actual results to differ materially from those implied or expressed by those statements. Factors, risks, and uncertainties that could cause international seaways actual results that differ from expectations include those described in our annual report on Form 10-K for 2019, in our quarterly report on Form 10-Q for the quarter ended March 31, 2020, and in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. With that out of the way, I would like to turn the call over to our President and Chief Executive Officer, Ms. Lois LeBrock. Lois?

Thank you very much, Jane. Good morning, everyone. Thank you for joining International Seawaste Earnings Call to discuss our first quarter 2020 results. Before we get into our quarterly results, please turn to slide four, where we'd like to talk about the coronavirus. Amid an unprecedented health crisis, we want to provide an update on the steps that we have taken to ensure the safety of all of our employees. both onshore and at sea professionals. Regarding our crew, we have implemented strict measures on all of our ships to keep our seafarers safe and healthy. This includes daily temperature checks, personal protective equipment such as goggles, gloves, masks, and we minimize the number of people that are boarding our ship. While global travel restrictions are making crew changes difficult, we want to thank our seafarers for their dedication and their commitment to adhering to the highest levels of professional standards. We continue to support industry efforts to designate seafarers as key workers. This would enable our seafarers to more freely travel to and from the ship and to their homes and their families. Onshore, with our employees all working remotely since March 16th, advanced planning has enabled our business to continue to run smoothly. With 24-hour IT support and remote connectivity, we continue to have all of our commercial, our technical operations, finance, and administrative departments fully functioning. We completed the quarterly close remotely, and all SEC reporting requirements were done on time. And we sincerely thank all of our staff for all of their hard work and their efforts. Lastly, although we have faced disruptions and delays, there have been no significant cost increases as of yet due to COVID-19, in spite of the challenges that we have faced. This includes vessel sire inspections, which are challenging to arrange with major oil customers, other inspections, which are becoming increasingly difficult, the transport of spare parts, which takes longer, and dry dockings and scrubber installations, which cannot be completed as quickly. due to shortage of staff in the yard. As we continue to operate in a COVID-19 environment, our priority remains ensuring the safety of our onshore and at sea professionals and providing safe, reliable service to our leading energy customers. If you'll turn to slide five, we review our first quarter 2020 highlights and our recent accomplishments. Seaway's disciplined and balanced approach to allocating capital combined with our success capitalizing on the current robust tanker market. And this has served us well in the first quarter. We continue to focus on creating lasting value for our shareholders. We highlight our success executing a proven capital allocation strategy during the first quarter. We execute it on four distinct fronts. Number one, we successfully refinance. $380 million of higher-cost debt. When you combine the savings from this refinancing with the savings we achieved from the prepayment of $110 million of debt that we retired in the fourth quarter, we have reduced annual interest expense by $25 million, and we have transformed our capital structure. Number two, at a time when when we had maintained one of the lowest leverage profiles in the public shipping sector, our balance sheet strength and our strong cash position enabled us to shift priorities and begin to return capital to shareholders. During the quarter, we initiated a $0.06 per share quarterly cash dividend, and we repurchased $10 million of our shares. Based on our stock valuation relative to our NAV, we believe this represents an attractive opportunity for C-Ways to further unlock value. Our priority is to optimize how we allocate our capital throughout the cycle. In addition to our regular quarterly dividends, we will continue to consider all of our options to unlock value for shareholders as we did during the first quarter. Number three. We repaid the outstanding balance on our revolver, which now provides 40 million of additional liquidity, which is important. This can be used opportunistically to take advantage of accretive opportunities in the future, and it's important when we are operating in periods of high volatility. Number four, consistent with our focus on strengthening our earnings power and further modernizing our fleet, we took delivery of an LR1, the Seaways Guayaquil, just ahead of the market recovery. This ship will trade in our Panamax International joint venture that has consistently outperformed the competitors in the marketplace. We also sold two older Afromaxis during the quarter, one of which delivered in the first quarter and the other, which is expected to deliver to the buyers in the third quarter, further improving the age profile of our fleet. Moving to the next bullet, the rate environment has continued to strengthen in the second quarter. And with our sizable fleet of crude and product carriers and significant exposure, not only to the VLCC market, but also to the mid-sized sectors, Afromaxis, Panamaxis, and MRs, we have captured this market strength, which will positively impact our earnings going forward. In addition to strong second quarter spot bookings to date, which Jeff will discuss later on in the call, we capitalized on the high rate environment by entering into a number of very favorable time charters for periods ranging from seven months to 36 months with major oil producing and trading companies. Specifically, in April, we executed a three-year VLCC time charter for $45,000 per day. and another time charter for one of our 18-year-old VLCCs for one year at $53,000 per day, locking in a very high return on this age shift. We also executed two seven-month VLCC time charters at an average rate of $100,000 per day, with the vessels scheduled to deliver in May. We are pleased to lock in these attractive rates, and all together with our joint venture income, These time charters reduce the fleet-wide break-even on our spot revenue days to $16,000 per day over the next forward 12 months. While we anticipate current market strength will persist, these longer-term charters executed at elevated rates ensures our revenue is optimized throughout the cycle. Moving to the last bullet. Our substantial operating leverage was evident during the first quarter, and we posted the strongest quarter since inception over three years ago. We earned a net income of $44 million, excluding items related to asset sales and debt refinancing, or $1.49 per share, our highest quarterly earnings per share as a public company. Our first quarter adjusted EBITDA with $74 million. This represents a year-over-year increase of $27 million. In terms of our strong liquidity position, at March 31st, we had $150 million in total liquidity, which includes the $40 million undrawn revolver. Turning to slide six, we provide an update on oil supply and demand. Due to the abrupt halt to large segments of the global economy, in response to COVID-19 while the world shelters in place. We have seen a significant decline in oil demand. The IEA forecast of global demand losses have been 29 million barrels per day for April and 9 million barrels per day for 2020. On the supply side, after OPEC and Russia failed to agree on cuts and Saudi Arabia announced an increase in production in March, OPEC Plus reached an agreement in April to curb production by approximately 11 million barrels per day beginning in May. With limited global demand, oil prices dropped precipitously in April. As a result, oil storage facilities on land are filling fast, leading the tanker market to bridge that gap as part of the solution. Tanker owners are currently benefiting greatly from the storage of oil and historically low oil prices. First, delays in congestion at discharge ports where there is inadequate storage space to accept cargo has created a ship supply shortage at load ports. This supports the elevated rate environment. Second, we're in the midst of a strong oil contango, which makes it profitable for traders to store oil, creating demand for tankers to serve as floating storage. This has the effect of further reducing ship supply, as seen in the chart on the right-hand side of the slide. This pushes rates higher. According to Reuters, there are currently about 160 million barrels being stored on ships as of mid-April. On slide 7, we provide an update on ship supply. The overall tanker order book remains historically low. Only six Vs have been ordered year-to-date in 2020. And 31 were ordered in the full year of 2019. Uncertainty regarding the current market as well as decarbonization and suitable propulsion systems to meet decarbonization goals and targets has tempered ordering. Ship supply also continues to be limited by longer installation times for scrubbers, as well as delayed Chinese new building deliveries as yards struggle with labor shortages. Moving to the lower half of the slide, we note that the global VLCC fleet continues to age, as evidenced in the chart at the bottom right. Out of 822 VLCCs, nearly 200 ships are over 15 years old. This is the age at which vessels become significantly more expensive to operate and have special surveys every two and a half years. Additionally, as ships now reach ballast water treatment deadlines, even greater capital expenditure is required. Based on these dynamics and the limited scrapping activity last year and into 2020 due to the market recovery, the potential for scrapping has been building. while there have been no vessels scrapped in 2020. If rates moderate, scrapping is likely to increase based on the aging fleet. Finally, I want to provide an update on our 10 VLCC scrubber program. To date, we have completed the installation on five of our modern VLCCs. Of the two ships that are presently in the yard undergoing conversion, one will sail this weekend, and the second will complete her scrubber installation end May, early June. Of the three remaining VLCCs in the program, we have decided to shift those installations into 2021 to alleviate installation challenges related to the COVID-19 pandemic. This better aligns the installations with the vessel's natural dry dock dates and also allows us to take advantage of the present strong market conditions. I'll now turn the call over to Jeff to provide additional details on the fourth quarter results.